Simply put, cannabis businesses can subtract the cost of goods sold (COGS) from their gross receipts to determine gross profit. This includes the costs directly related to the production of goods. Some deductions that cannabis retailers can claim for COGS include the invoice price for cannabis, less trade discounts, electricity used for inventory areas, and transportation costs for purchasing cannabis.
Operating Separate Businesses to Avoid 280E
Some dispensaries avoid the impact of 280E by claiming to operate separate businesses: a marijuana business and a non-marijuana business.
Impact of COGS on Profits
Monitoring and managing the Cost of Goods Sold is crucial for cannabis businesses to ensure higher profits and efficiency. COGS is subtracted from revenue to calculate gross profit and is linked to revenues and margins.
Cost of Goods Sold directly impacts profitability and is essential for tax management as it is deductible. Maintaining accurate records and understanding COGS help maximize tax deductions for cannabis businesses.